I’ve written for some time about a bottom being put in for gold and silver in December 2015. However, the renewed bull market has not been recognized. So, just what will it take for the metals to move up strongly enough so that they will again gain investors’ attention?
There’s always a chance of a black swan event, an incident that surprises but – using hindsight – should have been anticipated. A North Korean missile landing within a few hundred miles of the US west cost would be a black swan event that would regenerate interest in gold and silver.
Another possible black swan would the perception – real or not – that Trump is not going to see his major campaign promises fulfilled. The Senate’s failure to pass McConnell’s version of Obamacare reform tells us that Trump has a very rough road ahead.
But, the most likely development is going to be when the US Treasury runs out of money in September with no debt ceiling increase approved. According to David Stockman, the Treasury has a negative cash flow of $3 billion a day and has only enough money for 50-60 days. An increase of at least $2 trillion in the debt ceiling would be needed to get through November 2018.
Stockman asserts that the House Freedom Caucus will never agree to a “clean debt ceiling bill” as it would betray the reasons that its members ran for office. According to the Washington Post, at a meeting of eight of the most conservative members not once did they consider the idea of backing Treasury Secretary Mnuchin’s proposal for lifting the debt ceiling.
Stockman also speculates that if the Republicans do not deliver on raising the debt ceiling, Trump will turn to the Democrats. If so, he would have to compromise on many campaign pledges, such as no wall on the Mexican border, softening his stance on immigration and refugees and major concessions on Obamacare.
This is not far-fetched. Trump was a Democrat before switching to the GOP. He’s about making deals and has often changed positions overnight. Besides, he would be praised by the media for “crossing the aisle,” which means working with the opposition party, and if there’s anything that the President likes, its praise. As for Trump’s promised tax cuts, he wouldn’t get them from the Democrats, who would likely lobby him for higher taxes.
If such developments do come about, they would indicate even more government spending and would put an end to the Trump stock market rally. As stock prices fall, commentators would turn to discussing the negative aspects of the world’s economy and the dire financial state of affairs of nearly all governments.
There would be discussions about Illinois’ inability to pay its bills, Puerto Rico’s bankruptcy, the US national debt headed to $30 trillion, Japan’s trying to head off deflation by now owning 40% of all Japanese government bonds and being the major buyer of Japanese equities, the European Central Bank’s faltering quantitative easing program, the Swiss National Bank’s speculating in US stocks, Canada’s housing bubble, etc., etc., etc.
In such an environment, gold and silver prices could – probably would – see sizeable daily price increases. If you have money sitting on the sidelines, now would be a good time to consider moving some of it to the metals. Further, now would probably be a good time to move money from stocks to gold and silver.